Going Local

James Hoare - 11 February 2016

Saudi Aramco recently announced changes to their business model when they introduced the In Kingdom Total Value Add (IKTVA) program. The company expects to spend more than 300 billion dollars over the next 10 years, of which 70 percent will eventually be local products and services.

About the author

James Hoare is a member of Valve World magazine's editorial team and is contributing to articles, interviews and reports for KCI publications.

In his recent keynote address, Amin H. Nasser, President & CEO of Saudi Aramco, commented on the low level of domestic goods and services utilised in Saudi Arabia, citing this as unsustainable and that “for too long, local content has not been a formal requirement of doing business with Saudi Aramco”.

These weren’t simply words. The day of his speech, 1st December 2015, marked the immediate launch of Saudi Aramco’s In Kingdom Total Value Add (IKTVA), a social corporate responsibility initiative to help socioeconomic development in Saudi Arabia.

“IKTVA is a step change in our commitment to local content development that is now required across our domestic and international supply chain,” he said.

In broad terms, IKTVA’s goals are to:

deliver 70% local content by 2021

enable creation of 500,000 long-term jobs

increase Saudi exports by 30% by 2021

Saudi Aramco has set up a specific website for suppliers, complete with metrics to gauge their compliance to the above goals:

Localized goods and services

Salaries paid to Saudis

Training and development of Saudis

Supplier development spending

Company revenue (spend from Saudi Aramco only)

%IKTVA=[(A+B+C+D)/E]*100

However the company insists that whilst a metric exists, it’s overall design is to work with suppliers for mutual benefit, and that IKTVA is a “value creation program”, and not just a metric.

The website also admits the initiative “reorients the dynamics of our business partnerships with more than 1000 existing suppliers” and holds implications for suppliers: “participation in IKTVA will be one of the components used to evaluate any supplier proposal”. This is of course held for both local and international businesses. Dedicated account managers for suppliers and a contact centre to assist navigating the changes have also been established, according to the brochure, which emphasises fairness and transparency:

“IKTVA will provide a level playing field for domestic and international suppliers through greater consistency and increased transparency in application and process. Uniform evaluations for service and material suppliers will be consistent across the company, providing investment stability and assurance. The program will first establish a three-year baseline score for each supplier measured against key metrics for local content and value creation. After this, Saudi Aramco and each supplier will jointly develop an IKTVA action plan to increase the respective IKTVA scores and impact. Performance will be tracked and measured on an ongoing basis.”

I believe the initiative is lofty, makes sense, and can be complimented. Of course corporate social responsibilty requires governence and intervention to succeed. What are your thoughts?